NEW YORK, Feb 11 (Reuters) - Dollar-based borrowing costs between banks may increase next week, prompted by failed auctions in the municipal bond market and subprime woes that have slammed bond insurers, JPMorgan said on Monday.
A spike in the London Interbank Offered Rates (Libor) on dollar deposits could spark a fresh round of tightening in short-term credit, hurting business activities and the overall U.S. economy, JPMorgan analysts said in a research report.
Libor has fallen since December in the wake of the massive coordination between the Federal Reserve and other central banks to encourage bank lending that nearly ground to a halt amid the U.S. subprime crisis.
"Still, Libor levels remain very susceptible to market fears and to small changes in the funding landscape," the JPMorgan analysts wrote.
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http://www.reuters.com/article/bondsNews/idUSN1163723720080211
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